It outperformed the plan submitted to its holding company, Waterstone Financial, and was profitable for all of 2024 and so far in 2025, looking primarily at its origination business and not inclusive of any servicing sales. This accounts for the difference in numbers reported in Waterstone Financial's earnings release.

Several other lenders, such as UWM Holdings, use an adjusted metric when reporting results, giving a steadier view of the company's core performance.

Looking at broad industry profitability data compiled by the Mortgage Bankers Association bears out Waterstone's success, he said.

"Of those IMBs that can say that they're profitable on their pure originations, less than 5% could say that in '24, we're one of them, and less than 15% are being able to say that this year, and we are in that class as well," McGuiness said.

McGuiness joined Waterstone Mortgage in November 2020, after being the chief sales officer at Embrace Home Loans, and before that, CEO of Lenders One Cooperative.

Waterstone's gain on sale

Waterstone Mortgage's cost to produce is at "an industry-leading level," with disciplined execution and pricing which is "competitive but also astute," McGuiness said.

In the two most recent quarters, over 90% of production came from purchases, while in the first quarter, it was at 87.5%.

Gain on sale was 383 basis points in the third quarter of 2024, followed by 374 basis points, 398 basis points, 384 basis points and 387 basis points over the next four periods.

The MBA data for the second quarter put the total production revenue, which also includes fee income and warehouse spread besides net secondary market income, at 346 basis points versus 373 basis points in the first quarter.

In the period where it had the lowest volume over the past year, the first quarter at $387.8 million, is when Waterstone recorded the highest gain.

Like other IMBs, it funds loans through warehouse lines, with the primary provider being Waterstone Bank, McGuiness noted, which also gives it some more fluidity in adding products. But on the secondary side, the bank is only an outlet for one of its products, and it does have several sources where it can find the best execution with that product for the customer.

Waterstone Financial is not alone in offering a unique structure that has both depository and nonbank businesses.

An institution with a bank charter which was considered to be a mortgage bank rather than a depository was Republic Bancorp of Ann Arbor, Michigan. The company was acquired in 2006 by Citizens Banking of Flint, Michigan..

Currently, at Cenlar, which has a savings bank charter, its primary business is subservicing. But the company has expanded to offer warehouse lines and operate a secondary market conduit.

The owner of CMG Financial, Chris George, bought a bank in Madison, Wisconsin, the former Greenwoods State Bank, now Bank CMG, earlier this year.

Waterstone is not a big holder of mortgage servicing rights in the first place, and what it does have has to be "market-condition-appropriate for us," which is why it is not included in how the company measures profitability, he said.

How Waterstone plans to grow

The role of an IMB is to offer a broad variety of products to its customers. Waterstone is one of a growing number of lenders taking a look at what traditionally has been called non-qualified mortgages and it probably will be pursuing those loans a little bit more aggressively in the rest of the year, McGuiness said.

In the five years he has been in the CEO role, Waterstone has had far better success with organic growth than acquisitions.

"We really think that's our wheelhouse," McGuiness said. "We have the ability to attract those LOs that are a great cultural fit for us and us for them."

While organic growth might seem tedious, it works for Waterstone because its retention rates are high. The overall attrition rate for loan officers relative to other mortgage banks is half the annualized level, he said.

Current industry events impact on Waterstone

The hot topic in the mortgage industry today is the use of artificial intelligence technology and it is something which Waterstone is keeping a close eye on, as its competitors are as well.

"Efficiency for us is the bottom line," McGuiness said. Numerous AI applications are in the market but those don't necessarily fit with a company's technology stack and thus have limited use because they don't create a seamless or pleasant experience.

AI "is moving at the speed of light," he stated but it is not a people-replacer. Rather it can be a value added tool for loan officers. Even its underwriters, processors and closers can benefit from tools that make them more efficient and allow them to make better use of time.

"Can you enhance those individual performances as opposed to replacing those performers is where my head is at currently," McGuiness said.

The government shutdown does not seem to have an end in sight. So far it has affected Waterstone's U.S. Department of Agriculture lending because it is unable to obtain the needed certifications. But other programs have not been disrupted to date, McGuiness said.